According to Generally Accepted Accounting Principles,
A)income is recorded based on the matching principle.
B)costs are recorded based on the liquidity principle.
C)income is recorded based on the realization principle.
D)depreciation is recorded as it affects the cash flows of a firm.
E)net income is recorded based on the realization principle.

Question

Quizplus · Accepted Answer

The realization principle states that income should be recognized when it is earned, regardless of when payment is received. This principle matches revenue earned with the expenses incurred to generate that revenue, which is a fundamental principle of GAAP. Therefore, income is recorded based on the realization principle. Choices A, B, D, and E are incorrect because costs are recorded based on the matching principle, liquidity principle is not a GAAP principle, depreciation is recorded based on the matching principle, and net income is also recorded based on the realization principle.